July 2010 Archives

The Department of Labor (the "DOL") has issued Fact Sheet #73, which provides guidance on the break time requirement for nursing mothers in the Patient Protection and Affordable Care Act ("PPACA"). This requirement took effect when the PPACA was signed into law on March 23, 2010. The requirement is found in Section 7 of the Fair Labor Standards Act (the "FLSA"). The Fact Sheets says the following.

General Rules. An employer is required to provide reasonable break time for an employee to express breast milk for her nursing child, for 1 year after the child's birth, each time the employee has need to express the milk. The employer is also required to provide a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by the employee to express breast milk. The FLSA rule does not preempt any State law providing greater rights.

Time and Location of Breaks. An employer is required to provide a reasonable amount of break time to express milk as frequently as is needed by the nursing mother. The frequency and duration of breaks will likely vary. A bathroom, even if private, is not a permissible location for the break. The location provided must be functional as a space for expressing breast milk. If the space is not dedicated to the nursing mother's use, it must be available when needed. A space temporarily created, converted into a space for expressing milk or made available when needed by the nursing mother is sufficient, provided that the space is shielded from view, and free from any intrusion from co-workers and the public.

Coverage. Only employees who are not exempt from the FLSA's overtime pay requirements are entitled to breaks to express milk under the FLSA. Employers with fewer than 50 employees are not subject to the FLSA break time requirement, if compliance with the requirement would impose an undue hardship. Whether compliance would be an undue hardship is determined by looking at the difficulty or expense of compliance for a specific employer in comparison to the size, financial resources, nature, and structure of the employer's business. All employees who work for the covered employer, regardless of work site, are counted when determining whether this exemption may apply.

Compensation. The FLSA does not require employers to compensate nursing mothers for breaks taken to express milk. However, where an employer already provides compensated breaks, an employee who uses that break time to express milk must be compensated in the same way that other employees are compensated for break time. Further, the FLSA requires that the employee must be compensated for time spent on the break, unless the employee is completely relieved from duty during the break.

In Murray v. Principal Financial Group, Inc., No. 09-16664 (9th Cir. 2010), the plaintiff, Patricia Murray, is a "career agent" for the defendants, collectively called "Principal". Principal's career agents sell Principal products, which include a wide range of financial products and services. Here, Murray sued Principal for sex discrimination in violation of Title VII. The only issue faced by the Ninth Circuit is whether Murray is an "employee" under Title VII, as opposed to being an independent contractor, since she is protected under Title VII only if she is an employee.

The Court noted that insurance agents have consistently been held to be independent contractors, and not employees, for purposes of various federal employment statutes, such as ERISA, the ADEA and Title VII. The question though, is the appropriate test for determining an individual's status under those statutes. There are three candidates that have been used-the common law agency test, the economic realities test and the common law hybrid test: The Court said that the common law agency test, as applied by the Supreme Court in Nationwise Mutual Insurance Co. v. Darden, 503 U.S. 318 (1992), is the correct test. This test focuses on the hiring party's right to control the manner and means by which the product is accomplished. As set out in Darden, the factors relevant to this inquiry are: (1) the skill required; (2) the source of the hired individual's instruments and tools; (3) the location of the work; (4) the duration of the relationship between the hiring and hired parties; (5) whether the hiring party has the right to assign additional projects to the hired party; (6) the extent of the hired party's discretion over when and how long to work; (7) the method of payment; (8) the hired party's role in hiring and paying assistants; (9) whether the work is part of the regular business of the hiring party; (10) whether the hiring party is in business; (11) the provision of employee benefits; and (12) the tax treatment of the hired party.

Applying these factors to the instant case, the Court found that Murray is an independent contractor for purposes of Title VII. She is free to operate her business as she sees fit, without day-to-day intrusions. Murray decides when and where to work, and in fact maintains her own office, where she pays rent. She schedules her own time off, and is not entitled to vacation or sick days. Also, she is paid on commission only, reports herself as self-employed to the IRS, and sells products other than those offered by Principal in limited circumstances. The few factors which support employee status-such as the provision of some benefits, a long-term relationship with Principal, having an at-will contract, and being subject to certain minimum standards imposed by Principal- do not overcome the indications that Murray is an independent contractor.

Based on the discussion by the Court, Murray would likewise be treated as an independent contractor for ERISA purposes.

According to the Employee Benefits Security Administration's COBRA web page, the Unemployment Compensation Extension Act of 2010, signed by the President on July 22, 2010, did not extend the COBRA premium reduction. Thus, individuals whose employment is terminated (involuntarily or otherwise) after May 31, 2010 are not eligible for this reduction.

By way of background, the American Recovery and Reinvestment Act ("ARRA") provides a COBRA premium reduction (65% of the amount charged) for eligible individuals who are involuntarily terminated from employment through the end of May 2010. Due to a statutory sunset, the COBRA premium reduction under ARRA is not available for individuals who experience involuntary terminations after May 31, 2010. However, individuals who qualified on or before May 31, 2010 may continue to pay reduced premiums for up to 15 months, as long as they are not eligible for another group health plan or Medicare.

Employee Benefits-Government Issues Regulations On New Claims Review Procedures
The Affordable Care Act provides that group health care plans must provide an internal and external review procedure for benefit claims. This requirement builds on the claims procedure currently required by ERISA. It applies, in any plan year starting on or after September 23, 2010, to any group health care plan, other than a plan which is "gandfathered" (generally defined as being in existence on March 23, 2010 and not being changed since that date). A group health care plan to which the new claims procedure rules apply is referred to as a "covered health care plan". The Departments of Health and Human Services, Labor, and the Treasury have now jointly issued final, interim regulations which implement the new claims procedure rules. Here is a summary of what the new regulations say.

The new regulations give a participant in a covered health care plan the right to appeal any decision, including a benefit claim denial or rescission, made by the plan. More specifically, the new regulations give a participant:

--the right to appeal plan decisions through the plan's internal procedure; and

--for the first time, the right to appeal plan decisions to an outside, independent decision-maker.

These internal and external appeals procedures must be clearly defined, impartial, and designed to ensure that, when health care is needed and covered, the participant will have it.

Internal Appeals

A covered group health care plan must comply with all the requirements applicable to group health plans under the current ERISA claims procedure, as set forth in the Department of Labor's regulations (at 29 CFR 2560.503-1). The new regulations also contain the following six new requirements:

--the internal review procedure must apply to any adverse benefit determination, which includes any denial, reduction, termination or rescission of coverage, or any failure to pay a benefit;

--the plan must notify the participant of a benefit determination (whether adverse or not) with respect to a claim involving urgent care no later than 24 hours after receiving the claim (the DOL regs required 72 hours);

--the plan must provide the participant, free of charge and before any adverse benefit determination is issued, with the rationale for the upcoming determination, and with any new or additional evidence considered, relied upon, or generated by the plan in connection with the claim;

--to avoid conflicts of interest, the plan must ensure that all claims are handled in a manner designed to ensure the independence and impartiality of the decision-makers (e.g., the decision to hire a claims adjudicator or a medical reviewer cannot be made based upon the likelihood that the individual will support a denial of benefits);

--notice regarding benefit determinations must: (1) be written in a culturally and linguistically appropriate manner, (2) include information sufficient to identify the claim involved (such as date of service, the health care provider, the claim amount and any diagnosis codes), (3) describe the plan's internal/external claims procedure and how to initiate an appeal and (4) provide contact information for any government office established to assist the participant pursue internal and external claims; and

--if the plan fails to strictly adhere to all of the requirements of the internal claims procedure, the participant is deemed to have exhausted that procedure and may immediately initiate an external claim.

In addition, the plan is required to provide continued health care coverage to the participant pending the outcome of the internal appeal.

External Appeals

A covered health care plan must generally comply with either a State external review procedure or the Federal external review procedure. When the plan is insured, if there is a State external review procedure which applies to and is binding on the plan's insurer, and which includes, at a minimum, the consumer protections in the NAIC Uniform Model Act in place on July 23, 2010, then that insurer must comply with that State external review procedure, and the plan itself need not provide an external review. Any other covered health care plan, including a covered plan that is self-insured, must follow the Federal external review procedure (as discussed below, not yet established).

Under the new regulations, a State external review procedure will be treated as containing the requisite consumer protections if it:

--provides for the external review of an adverse benefit determination (including a final internal adverse benefit determination), which is based on medical necessity, appropriateness, health care setting, level of care, or effectiveness of a covered benefit;

--requires the insurer to provide effective written notice to a plan participant of his or her rights in connection with an external review;

--if the State procedure requires exhaustion of an internal claims procedure, makes exhaustion unnecessary if the insurer has waived the exhaustion requirement, the participant has exhausted (or is considered to have exhausted) the internal claims procedure or the participant has applied for expedited external review;

--requires the insurer to pay the cost of an independent review organization (an "IRO") for conducting the external review (other than a minimal filing fee);

--does not impose a minimum dollar amount of a claim for it to be eligible for external review;

--gives the participant at least four months, after receiving a notice of an adverse benefit determination (including a final internal adverse benefit determination), to file a request for an external review;

--provides that an IRO will be assigned on a random basis, or utilizes
another method of assignment that assures independence and impartiality of the assignment procedure-the IRO cannot be selected by the insurer, plan or participant;

--provides for maintenance of a list of approved IROs-any IRO must be accredited by a nationally recognized private accrediting organization;

--provides that any approved IRO has no conflicts of interest that will influence its independence;

--allows the participant to submit to the IRO in writing additional information that the IRO must consider when conducting the external review, and requires that the participant is notified of this right;

--provides that the IRO's decision is binding on the insurer, plan and
participant, except to the extent that other remedies are available under State or Federal law;

--provides that the IRO must provide written notice to the insurer and the participant of its decision to uphold or reverse the adverse benefit determination, by no more than 45 days after it receives the request for external review;

--provides for an expedited external review in certain urgent circumstances and, in such cases, provides that the IRO will provide notice of its decision within 72 hours after it receives the request for review.

--requires that the external review procedures be described in the plan's summary plan description, policy, certificate, membership booklet, outline of coverage, or other evidence of coverage;

--requires that the IRO maintains written records of its decisions and makes them available to the State upon request; and

--follows procedures for external review of adverse benefit determinations involving experimental or investigational treatment, substantially similar to what is set forth in section 10 of the NAIC Uniform Model Act.

As a transitional rule, any existing State external review procedure will be treated as meeting the foregoing requirements, until the first plan year beginning after July 1, 2011. At that time, the Federal external review procedure will apply unless the State procedure is revised to meet these requirements.

The Departments of Health and Human Services, Labor, and the Treasury will establish a Federal external review procedure. The new regulations describe the standards which the Federal external review procedure must follow.

The Affordable Care Act - the health care reform legislation passed by Congress and signed into law by President Obama on March 23, 2010 -requires health care plans to cover recommended preventive services, without charging a deductible, copayment or co-insurance (that is, without "cost-sharing"). Any health care plan is covered by these requirements, unless the plan is "grandfathered" (that is the plan existed on March 23, 2010 and has not been changed so as to lose grandfather status). The Departments of Health and Human Services, Labor, and the Treasury have now issued regulations, which require covered private health care plans to offer recommended preventive services, and to eliminate cost-sharing for this coverage. The rules in the Affordable Care Act pertaining to preventive care, and the new regulations, apply in plan years beginning on and after September 23, 2010. The government has also issued a Fact Sheet on the new regulations. Here is what the Fact Sheet says on the preventive services that must be covered.

Plans covered by the preventive care rules in the Affordable Care Act and the new regulations must offer coverage of a comprehensive range of preventive services, which are recommended by physicians and other experts, without imposing any cost- sharing requirements. Specifically, these preventive services (including medications) include the following:

--Evidence-based preventive services: The U.S. Preventive Services Task Force, an independent panel of scientific experts, ranks preventive services based on the strength of the scientific evidence documenting their benefits. Preventive services with a "grade" of A or B, like breast and colon cancer screenings, screening for vitamin deficiencies during pregnancy, screenings for diabetes, high cholesterol and high blood pressure, and tobacco cessation counseling will be treated as preventive services that a covered plan must offer.

--Routine vaccines: A set of standard vaccines recommended by the Advisory Committee on Immunization Practices, ranging from routine childhood immunizations to periodic tetanus shots for adults, must be offered by a covered plan.

--Prevention for children: Preventive care for children, recommended under the Bright Futures guidelines developed by the Health Resources and Services Administration with the American Academy of Pediatrics, will be treated as preventive services that a covered plan must offer. This preventive care includes regular pediatrician visits, vision and hearing screening, developmental assessments, immunizations, and screening and counseling to address obesity and help children maintain a healthy weight.

--Prevention for women: Care provided to women under both the Task Force recommendations and new guidelines being developed by doctors, nurses, and scientists, which are expected to be issued by August 1, 2011, will be treated as preventive services for these purposes.

--Updates: The list of preventive services is regularly updated to reflect new scientific and medical advances. As new services are approved, covered health care plans will be required to cover them (with no cost-sharing) for plan years beginning one year later. A full list of the preventive services which must be offered by a covered plan is available at www.HealthCare.gov/center/regulations/prevention.html.

The Department of Labor (the "DOL") has now issued a final, interim regulation on improved fee disclosure for pension plans. The DOL has also made available a Fact Sheet which describes the new regulation. Here is what the Fact Sheet says:

ERISA requires plan fiduciaries, when selecting and monitoring service providers and plan investments, to act prudently and solely in the interest of the plan's participants and beneficiaries. Responsible plan fiduciaries must also ensure that arrangements with their service providers are "reasonable" and that only "reasonable" compensation is paid for services. Fundamental to the ability of fiduciaries to discharge these obligations is obtaining information sufficient to enable them to make informed decisions about the services, the costs, and the service providers.

The new regulation represents a significant step toward ensuring that pension plan fiduciaries are provided the information they need to assess both the reasonableness of the compensation to be paid for plan services and potential conflicts of interest that may affect the performance of those services. For the first time, a specific obligation to provide this information is imposed on plan service providers.

Overview of The New Regulation

• It applies only to defined contribution and defined benefit pension plans, and focuses on the disclosure of the direct and indirect compensation certain service providers receive from the plans.
• It applies to plan service providers that expect to receive at least $1,000 in compensation in connection with their services to the plan, and that provide: (1) certain fiduciary or registered investment advisory services, (2) recordkeeping or brokerage services to a participant-directed individual account plan in connection with the investment options made available under the plan or (3) certain other services for which indirect compensation is received.
• It focuses on service providers and compensation arrangements that are most likely to raise questions for plan fiduciaries with respect to the amount of compensation being received by a service provider for plan-related services and potential conflicts of interests that might compromise the quality of those services.
• It includes a class exemption from ERISA's prohibited transaction provisions for a plan fiduciary who enters into a contract without knowing that the service provider has failed to comply with its disclosure obligations.

Disclosure of Services and Compensation Under the New Regulation

• Information required to be disclosed by plan service providers must be furnished in writing to the plan fiduciary.
• Information that must be disclosed includes a description of the services to be provided and all direct and indirect compensation to be received by the service provider, its affiliates or subcontractors from the plan. Direct compensation is compensation received directly from the plan. Indirect compensation generally is compensation received from any source other than the plan sponsor, the covered service provider, an affiliate, or subcontractor.
• Because certain services and costs are so significant or present the potential for conflicts of interest, information concerning those services and costs must be disclosed without regard to whether services are furnished as part of a bundle or package.
• Service providers must disclose whether they are providing any services as a fiduciary to the plan.
• Information also must be disclosed about plan investments and investment options. These disclosure obligations are placed on the fiduciaries to investment vehicles that hold plan assets and on recordkeepers and brokers who, through a platform or other mechanism, facilitate the investment in various options by participants in individual account plans, such as 401(k) plans.

Ongoing Disclosure Obligations Under the New Regulation

• Changes: A service provider generally must disclose a change to the initial information required to be disclosed as soon as practicable, but no later than 60 days from the date on which the covered service provider is informed of such change.
• Reporting and Disclosure Requirements: Service providers also must, upon request, disclose compensation or other information related to their service arrangements that is requested by the responsible plan fiduciary or plan administrator in order to comply with ERISA's reporting and disclosure requirements.

The new regulation is effective for contracts or arrangements between plans and service providers as of July 16, 2011.

In Williams v. Metropolitan Life Insurance Company, Nos. 09-1025, 09-1568 (4th Cir. 2010), the plaintiff, Gloria Williams, had been employed by Cingular Wireless as a customer services clerk. She became a participant in Cingular's insurance plan (the "Plan"), which offered long-term disability benefits. The Plan was insured by the defendant, Metropolitan Life Insurance Company ("MetLife"), who was the claims administrator, and served in the dual role of evaluating benefit claims and paying approved claims. The terms of the Plan granted MetLife the discretionary authority to interpret the Plan and to determine benefit eligibility.

The plaintiff had developed medical issues with her hands and wrists, causing severe pain when she engaged in work activities, such as typing on a computer. Eventually, the plaintiff left work and filed a claim with MetLife for long-term disability benefits. MetLife paid the benefits for about 18 months, and then terminated them. The plaintiff filed this suit under ERISA, challenging MetLife's decision to terminate the long-term disability benefits, and the case found its way to the Fourth Circuit Court of Appeals.

The Court said that when, as here, a plan subject to ERISA grants the claims administrator the discretionary authority to make eligibility determinations for participants, a reviewing court evaluates the claims administrator's decision to deny or stop benefits for abuse of discretion. Under that standard,the Court will not overturn the claims administrator's decision so long as it is reasonable. To be "reasonable", the decision must result from a deliberate, principled reasoning
process, and must be supported by substantial evidence.

The Court continued by noting that under the Supreme Court's decision in Metropolitan Life Insurance Co. v. Glenn, 554 U.S. 105, 128 S. Ct. 2343 (2008), where, as here, the claims administrator has a structural conflict of interest because it both decides and pays claims, the conflict becomes one of the factors that a judge must take into account in determining whether the claims administrator's decision to deny or terminate benefits is reasonable. In this case, however, this conflict should not have a significant role in the Court's evaluation of MetLife's decision to terminate the plaintiff's benefits. MetLife's initial finding and payment of the long-term disability benefits, and its referral of its termination decision to two independent doctors, suggests that MetLife was not inherently biased in making its
decision to terminate the benefits.

Nevertheless, the Court found that MetLife's termination decision is not supported by substantial evidence. The plaintiff's claims file contained overwhelming evidence reflecting significant problems with her hands and wrists. Her physicians repeatedly concluded that she should not return to work, or required a modification of job duties, due in part to the pain in her hands and her inability to type on a computer. MetLife itself noted that the plaintiff was unable to turn her head and use her hands for extended periods of time due to the pain. Based on its review of the administrative record, the Court said that MetLife's decision to terminate the benefits was not reasoned and principled, and was not supported by substantial evidence. MetLife appears to have disregarded, without justification, the plaintiff's treating physicians' conclusions regarding her medical problems. The Supreme Court has said that claims administrators may not arbitrarily refuse to credit a claimant's reliable evidence, including the opinions of a treating physician.

Based on the foregoing, the Court concluded that MetLife's decision to terminate the plaintiff's long-term disability benefits was an abuse of discretion and thus had to be overturned.

According to a News Release, the Department of Labor ("DOL") has adopted an amendment to Prohibited Transaction Exemption ("PTE") 84-14, which allows a QPAM to manage the assets of a plan it sponsors.

The News Release says that PTE84-14 allows plans whose assets are managed by a QPAM to engage in a variety of transactions otherwise prohibited by ERISA, provided that certain safeguards have been met. Banks, insurance companies, savings and loan associations, and investment advisors who meet certain regulatory and financial standards are eligible to serve as QPAMs under the amended exemption. The amendment to PTE 84-14 allows the QPAM to manage the assets of a plan it sponsors, so long as, among other things:

--The QPAM adopts policies and procedures designed to assure compliance with the conditions of the exemption; and

--An independent auditor conducts an annual exemption audit, which is designed to ensure that the conditions of the class exemption have been met.